The Intermediary – April 2025 - Flipbook - Page 60
P RO T E C T I O N
Opinion
Will commission
survive the
FCA’s review?
R
ecently, the Financial
Conduct Authority
(FCA) published the
terms of reference for
its review of the pure
protection market,
following consultation on the review’s
scope and approach.
While many of those who are tired
of being ‘bundled in’ with general
insurance (GI) welcome this market
study, the elephant in the room is
commission – or, to be more specific,
commission bias.
For years, consumer groups have
cited commission bias as a major cause
of consumer harm. The industry’s
position is that, because life insurance
is not that stimulating to purchase,
without commission, sales will drop
and the proportion of protection
provided will plummet – which is
not good for the nation’s financial
resilience. Fundamentally, both
arguments are true.
Bad outcomes
The challenge for the industry is how
it can reduce bad outcomes which
result from commission bias, and
evidence this, so that it does not get
strangled by a blunt regulation. The
industry needs to demonstrate that
commission bias is just a minimal
cause of bad outcomes.
Consumer Duty gives the financial
services industry the framework
needed to measure and report on bad
outcomes for all consumer types.
Ideally, firms would demonstrate the
effects of commission on consumer
outcomes across different distribution
models – although, as most firms have
a single remuneration model, this
may not be possible.
Recent aention has been on
claims and claim turnaround times,
and as claims are where the value of
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The Intermediary | April 2025
protection insurance is received and
demonstrated, they deservedly get
this aention.
20 years ago, MorganAsh
introduced tele-interviewing to the
UK. The key benefits of this were
to separate the medical assessment
from the sales process, and to be
more diligent in collecting medical
information. Now, the amount of
misrepresentation we see that results
in paid-out claims is effectively zero –
we do get some fraud by consumers,
but this is quickly and easily debunked
at the time of claim.
The industry chose a different
route, pursuing automated systems
and requiring the salesperson to
undertake medical assessments –
all in the pursuit of sales, which
were prioritised over reducing
misrepresentation and any resultant
problems at claim stage.
Fair value
Statistics on declined claims due to
misrepresentation have improved
over the years – but this is due to cases
being paid out rather than up-front
identification. Reinsurers report
misrepresentation in around 10% to
20% of cases – and they maintain that
the industry could reduce its fees if
misrepresentation was reduced.
Under Consumer Duty, it is
difficult to justify consumers paying
a premium resulting from an
industry focusing on sales rather
than consumer outcomes. There is a
difficult fair-value argument, which
says that consumers pay more because
the industry is focused on sales – and
indeed, this is exactly what Consumer
Duty is trying to change.
We know consumers believe
that pay-out rates from protection
insurance are far lower than they are
in practice, and despite good PR and
ANDREW GETHING
is managing director
at MorganAsh
marketing efforts, this has hardly
changed over the last 20 years.
The industry’s focus is on sales, not
consumer outcomes, and it only needs
a few bad stories – justified or not – to
reinforce the consumer’s view. Aer
all, bashing the insurance industry
drives both views and clicks.
Consumer Duty’s main thrust is
for firms to focus on good consumer
outcomes or, at the least, reducing
bad outcomes, as this will improve
consumers’ trust over the long term.
Improving trust over the long term
should improve consumer take-up and
sales, so it is in both the consumer’s
and the industry’s interest.
When remunerating by commission
to an individual, and requiring them
to undertake the medical assessment,
it is difficult to even suggest that bias
does not exist.
In addition, undertaking medical
assessments and selling or advising on
products typically requires radically
different skill-sets, and is generally an
inefficient use of advisers’ time.
Using techniques like teleinterviewing to separate sales and
medical assessments not only removes
bias, but provides the evidence of
having removed bias.
It seems to me that carrying
on denying there is an issue with
commission bias, without any
evidence, is not going to wash. Firms
must prove to the regulator that
there is no commission bias – and
demonstrate the removal of bias to
win back consumers’ trust. ●
